White Collar Criminal Litigation, Investigations, and Compliance

Foreign Corrupt Practices Act (FCPA)

Foreign Corrupt Practices Act (FCPA)

Regulatory enforcement is on the rise, and the DOJ and SEC are
expected to remain aggressive in enforcing the FCPA in the future. But
one fundamental economic issue in FCPA disputes has so far garnered
little attention: if a company pays a bribe to secure a project, what
exactly is the gain to the company from the bribe?

During the penalty phase of an enforcement action, the
amount of fines (including disgorgement) levied are based on the
"benefit received" from a bribe. However, to date there has been little
consideration of the true benefit of the bribe. With fines escalating
into the hundreds of millions of dollars, it is necessary to clearly
understand what effect a bribe had on profits and to carefully establish
what the but-for profits would have been without the bribe. Rigorous
economic analysis sheds light on how to evaluate the effect of a bribe
and what the appropriate fines, if any, should be.

The true benefit of a bribe is not based only on the profits
earned from the project; there are a number of additional considerations
based on the incremental probability of winning generated by the bribe,
and the opportunity cost of the project won, that will lead to a more
realistic (and sometimes lower) calculation of the true economic profits
from the bribe. For example, while a bribe may have led to very high
gains, the but-for profits could have been high (and the gain from the
bribe low) if the bribe would have little effect on the probability of
winning the work or if alternative projects were similarly profitable.

NERA experts can help in FCPA matters by using economic
analysis to apply great precision to the financial benefits of bribery
in order to evaluate the effect of the bribe, and therefore the
appropriate fines. We offer a global team of experts in economics,
finance, and accounting; many of NERA's economists are also Certified
Public Accountants and Chartered Financial Analysts, with training and
experience in analyzing financial statements and financial data prepared
in accordance with Generally Accepted Accounting Principles and
International Financial Reporting Standards.